Socialism means no toilet paper?

In which I teach Timmy about economics1. What can I lose? Its a guaranteed crowd-pleaser; everyone reading here hates neolibs anyway :-).

So: Timmy recommends as “An excellent piece” Art People: Learn Economics, I Beseech You by Franklin Einspruch. And, well, its all more or less the obvious if you’ve been following Timmy or similar, but said quite nicely especially the headings (The Opposite of Greed is Fear is definitely cute). But then! Quelle horreur:

Socialism means no toilet paper.

Especially when its actually:

If you take one lesson from this essay, make it this: Socialism means no toilet paper.

So it would be gross weaselling to say, to take a random possible defence that only the most weaselly of weasels would make, “but that’s a detail from what I still regard as a lovely piece” :-). Ahem.

Bu this is worth knowing, and I think it is worth knowing, as a thought even if not as something you’re prepared to agree with, that what destroys toilet paper is not socialism, but a non-market economy. Or, put into the cutesy style of the piece’s own headings: the opposite of socialism is capitalism, not markets. The opposite of markets is non-markets / central planning, not socialism. More words from Timmy on the same / similar.

Notes

1. But only by remembering what he said slightly better than he remembered it. If, indeed, I have.

Like this:

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58 thoughts on “Socialism means no toilet paper?”

“So it would be gross weaselling to say, to take a random possible defence that only the most weaselly of weasels would make, “but that’s a detail from what I still regard as a lovely piece” :-). Ahem.”

Hands up and guilty.

Still think that’s a detail from a generally lovely piece though. Even if I would have attacked it as an error in a piece that I generally disagreed with.

At the top, we find that large collectives under the control of a small number of people are bad. This presumably includes all large corporations.. Indeed, it’s an interesting question – a senior exec at Unilever, as an example, will be only very distantly affected by market forces or shareholder concerns. At least politicians get voted out. Who is held to account more?

We are then given a nice false dichotomy between markets – asserted to be effectively perfect – and fairly extreme forms of communism/bans on trading. Which is basically the good ol’ argumentum-ad-north-korea.

Redistribution=theft is another example of the false dichotomy in view. It is only a valid argument if we assume perfectly operating markets with no asymmetry of bargaining power or information, as well as assuming that the outcome of such a market is morally optimal. If – as if virtually always the case – people are making excess profits due to asymmetrical terms – then correcting this via taxation and redistribution is not only moral, but actually essential to keep the market system functioning at all.

But actually admitting suboptimal outcomes from markets is as hard for a neoliberal as admitting that the toilet paper has run out for your good ol’ socialist. Or, as the author of the piece puts it, ‘Look! Kim Jong-Un!’.

And yes, neoliberalism is a thing, well-poisoning aside. Just as with communists, neoliberals have an implicit belief that their system is optimal and as such can be imposed on people for their own good, without explicit consent (hey, this is natural, guys, just like Ebola..). We implement our ‘structural reforms’ and call them good even when the streets are on fire.

Grown ups of the social democratic persuasion may regard both the extremes of communism and neoliberalism as the kind of morality tales best kept for the kids. But.. empiricism, muddling through, obtaining consent, accepting that the world is not as you want it to be.. these are hard, imprecise and messy things that the Timmys of the world cannot be expected to understand.

that what destroys toilet paper is not socialism, but a non-market economy.
Okay, yes, this makes sense and I broadly agree. However, do you regard this as true at all levels, or simply as a broad description of an ideal economy/society/system? It’s seems clear that societies that are more market driven have stronger economies than those that are not, but even within those systems there are aspects that are much more central than others. Policing, healthcare, education, justice,….. So, it seems to me that the real complexity is in the details, rather than in whether or not market-driven systems are generally preferable to those that are non-market-driven systems.

To make a stronger point, the problem I have at the moment is not with the idea that market-driven systems are preferable, but the sense that some would like to apply this at all levels, and that just seems flawed. Not that I’m implying that this is what you’re suggesting – just making a general point.

[I think you could regard this as true in an absolute or theoretical sense at all levels, but in practice one always needs to make allowances for the state of the world. Or at least I do, and people like Timmy do. Doubtless there are some extremists who would argue for nothing-but-markets; tarring all liberal-marketeers with that is about as sensible as tarring all “green” folk with supporting Earth First violence.

I was thinking of the case of China, which I think one could regard as a centrally-planned economy on the largest levels (build a railway here; erase these villages and build a dam here; etc) but (I assume) doesn’t actually touch the market price of rice or toilet paper. And perhaps one could argue that large-scale manipulation which sits in-some-sense above the market may work? They deliberately interfere with interest rates, for example. That works, at least in the short term -W]

tarring all liberal-marketeers with that is about as sensible as tarring all “green” folk with supporting Earth First violence.
I agree, but this type of rhetoric is a rather standard tactic, unfortunately.

There is no other allegedly scientific field whose predictions are so consistently and publicly wrong as those of economists, especially but not only neoliberal economists. In almost any other field, such constant abject failures would eventually lead to the realization that one’s hypotheses needed some adjustment. Why do we keep listening to these clowns?

I see parallels between neoliberal economics and Lysenkoism. Specifically, both are based on assumptions for which there is little or no empirical evidence that they are true, but it would be very convenient for powerful people if they were true. For instance, the Efficient Markets Hypothesis. If that hypothesis were true, then the financial crisis of 2008 could not have happened, and Wall Street and the City could not exist in their current forms, because all depend on market imperfections that EMH ignores. But it would be convenient for many in Wall Street and the City if the EMH were true.

To be fair consumerism and free market capitalism have been fantastically good at providing all sorts of novel entertaining diversions that effectively re-radiate a glut of stored chemical potential in organic fossil fuel bonds back out to space as thermal black body radiation. I am of course talking about smart phones, laptops, jet travel to tropical holidays, and many other wonderful luxuries. You can be fairly certain no planned economy would have ever refined these products to the point of where they are today.

But what consumerism and free market capitalism are absolutely appalling at accomplishing is ensuring, in a sustainable manner, everyone is vaccinated, has clean drinking water, has their sewage treated and their garbage disposed, has a functioning transportation infrastructure, and a minimum amount of accessible education, health care, nutrition, and housing, and of course fair, free, and transparent means of resolving disputes, abuses, and conflicts. All these tasks require a substantial amount of altruistic collective action, which simply cannot be found in the for profit economies of consumerism and free market capitalism.

A society must accomplish all these tasks as a necessary prerequisite to being able to sustain a healthy educated populace that can demand and invent all the fancy gadgets of consumerism and free market capitalism. Collective not for profit reinvestment into society, on top of directly redistributing wealth, also provides for the opportunity to invent new forms of economic and cultural interaction. Think of any major modern private sector economic activity and you can trace its roots back to substantial public investment. That is not philosophy, politics, or ideology that is an empirical observation of history.

Capitalism cursing all forms of not for profit collective action is a kin to a son cursing their mother for giving birth to them.

[I don’t think Capitalism does curse “all forms of not for profit collective action”. You’re attacking a strawman. As to the other stuff: in the UK, providing clean drinking water *is* pretty well down to the free market. Its a regulated free market, but the state has been out of water provision for quite a long time now -W]

I am surrounded by fraud. It’s in the water, even. Policing fraud is the cornerstone of market efficiency, and it is not simple. I about went on about Greenspan, but my blood pressure can’t take it.
(The “smart phone” does all sorts of things. It barely provides telephony of the quality I used to experience, however.)

“As to the other stuff: in the UK, providing clean drinking water *is* pretty well down to the free market”

But that privatization would have never happened on its own if there had not been an enormous public investment upfront to build the water infrastructure in the first place. Not to mention the city planning, zoning, residential bylaws, and building codes that go into coordinating the delivery of water, let alone any other necessity.

Claiming a recently privatized publicly built and regulated infrastructure as an example of capitalism spotaneously providing for the basic necessities is grossly misleading.

It also fails to recognize, or at least downplays, the enormous exploitative force capitalism can exert when it is left without strict regulation to provide for the basic necessities of life. Because, well, basic necessities are just that necessities, you will not live long without food, water, shelter, etc… No one can honestly claim to have the best interest of mankind at heart and simultaneously assert that only those who can afford to pay the most should have access to the basic necessities of life.

[Again, you’re fighting strawmen. Just like the GW denialists do -W]

I’ll give capitalism and consumerism due credit, there would be no iphone or sports car without it. But I will not allow for capitalism to claim it has improved the lot of mankind through, say vaccinations, or for that matter claim the contributions of Mozart, Einstein, or Frost as the “natural” results of free market.

[Pfft, you can’t claim Mozart, Einstein or Frost for socialism either. They are for themselves, being unique genius -W]

Capital intensive research and development is usually the cornerstone of new technologies, but along with it comes risk. Capitalism has generally failed at assuming that risk.

Without government assistance most of the modern conveniences we are surrounded by wouldn’t exist or would be generations behind their current levels. Governments have borne the risk that pure research would payoff somewhere down the line. Corporations typically step in only when the risk has been either erased or greatly reduced.

Chomsky has long labeled this ‘Privatizing Profit, Socializing Risk’ and has pointed out the irony that many of the oft-cited great achievements of capitalism / free markets are nothing of the sort – they’re often the result of government funded research.

“consumerism and free market capitalism have been fantastically good at providing all sorts of novel entertaining diversions that effectively re-radiate a glut of stored chemical potential in organic fossil fuel bonds back out to space as thermal black body radiation”

As Chomsky’s excellent speedboat testifies , this has replaced angling as is the contemplative man’s recreation.

First off, I am not claiming anything for socialism or any “-ism”. What drives people to do anything is far more diverse than the simple greed and narrow self interest motives postulated by nearly any economic theory. But certainly at least in my corner of the world free market capitalist, like the Koch brothers, vociferously claim that only free market capitalism can bring good into the world. It may appear a straw man to you, but it is the very real argument that a large portion of free market capitalist make. Have you not had the misfortune of watching Kevin O’Leary?

[I notice that you feel no need to provide any evidence for what you say; that’s wrong. So, go on: lets have a reference to support your assertion that the Koch bros “vociferously claim that only free market capitalism can bring good into the world” -W]

Secondly, that Wikipedia article is hardly a glowing endorsement. It points to most significantly that tight regulation, transparent monitoring, and accountability are key.

[I didn’t intend it as a glowing endorsement. Its a reference for the privitisation being 25 years old -W]

Thirdly, if not collapsing is your metric of success that is a pretty low bar, that even many former communists states have managed to succeed at. I would hope that metrics such as increasing the volume and pressure of water produced per joule consumed or kilogram of treatment consumed, or reducing the concentration of chemical and biological contaminants for per consumed processing resource would be among the gold standards for performance. Which FYI are not metrics naturally captured by the singular measure of “profit”.

[My metric wasn’t “not collapse”. The system continues to function, as well or better than it did before. Your assertion (with a complete lack of refs) that “free market capitalism [is] absolutely appalling at accomplishing … clean drinking water” is either clearly wrong (if you’re prepared to accept the UK water as “free market”) or untested (if you’re going to assert that since its govt regulated, its not really “free market”); I don’t see you retracting it, though -W]

I hate to harp on this, but I also find it odd you would accuse me of using straw man arguments when you have used a number of false dichotomies, such as planned versus free markets, and capitalism versus socialism. Those dichotomies are social constructs, as much as the value of a financial currency, or gold is a social construct.

[Were I using FD that wouldn’t excuse your strawmen. But I’m not. That there exist no 100% planned economies and no 100% free market economies doesn’t make the concepts of the two, and the choice between the two on a spectrum, a useful dichotomy -W]

Now before you go down that road of saying “Aaron! But wait people exchange real material objects, that even may store large amounts of energy, not just ideas and emotions. So it cannot all just be a social construct”. To which I reply, why yes, I won’t deny that moving energy and matter around the surface of the Earth in complex interwoven networks empirically appears to be an intrinsic part of the physical processes on this planet. However our arbitrary labeling of one process or material as being financial valuable and another not is a pure social construct. Do you deny that many people financially value highly harmful activities and goods?

[That people prefer different things is a commonplace. If everyone valued everything the same, there would be no basis for exchange. I don’t think you’ve said anything coherent in the above -W]

To be clear the only “-ism” that ever made the world a truly better place is altruism.

Why do Venezuela and Honduras have such similar outcomes given their radically different economic, political, and social policies?

To which I would not be so arrogant as to quickly proffer an answer.

[You’re holding them up for a reason; pretending otherwise is just dishonest. I’m not familiar with Honduras. I rather doubt that it is “similar” to Venezuela. Certainly, I see no evidence for a toilet paper shortage there -W]

I’ve been following the discussion between Aaron and WMC with some interest. I have some sympathy with what Aaron is saying, but I can also see that WMC’s responses are valid. Surely, the fundamental point is that there is no system that is fully functional when at one extreme of the possibilities (fully free-market, not regulation or fully socialist with no market)? The devil’s in the details and, I think, there is (as I think WMC is pointing) much confusion about what actually happens.

My particular example would be healthcare. In the UK at the moment, most healthcare spending is public (maybe 10% is private). Most of the healthcare provision is essentially public, although even there there are complexities as – I think – GPs are self-employed (I could be corrected on that).

The NHS is, however, rather a hot topic. Do we keep it as is and fund it mainly via taxation? Do we move towards privatisation? If so, what does this really mean? The cost per person is about £2000 per year. It’s not going to go down as healthcare spending in the UK is – at best – comparable to other similar countries. So, how do people on low incomes pay for this? Do you leave them out if they can’t afford it (appalling idea) or do you find a way to subsidise people (as many countries do)? If the latter, then healthcare is still essentially regulared and somewhat public, but you’re hoping that privatisation will somehow make it more efficient. On the other hand, you’re relying on organisations whose prime motivation is profit (as it should be if they are doing what’s in their investors best interests).

There are certainly countries that follow this type of model very successfully, but US healthcare is incredibly inefficient. However, this is probably more to do with poor regulation than with it being private.

Okay, this has got more convoluted than I had intended, but the point I was trying to get at is that if you impose some kind of societal condition on a system (everyone must have education/healthcare/police protection/…) then it’s almost always going to be some complex combination of private provision with some kind of central influence. We can argue about this balance, but it’s hard to see how one can have a societally acceptable system (in a decent society, at least) that doesn’t have some balance between private and public.

The problem is that these discussions are full of rhetorical/propagandistic obfuscations, primarily as the result of a decades-long campaign by bought-and-paid-for academic departments and ‘think tanks’.

WMC says:

“That there exist no 100% planned economies and no 100% free market economies doesn’t make the concepts of the two, and the choice between the two on a spectrum, a useful dichotomy.”

What in the world is that supposed to tell us? What *is* ‘the concept of a 100% free market economy’? What are the mathematical characteristics of a ‘spectrum’ like this; what’s the metric?

[What *is* ‘the concept of a 100% free market economy’? Are you really in doubt about that? Its the std libertarian wet dream. Everyone knows that -W]

You are correct; it is a matter of balance, and the metric is simple: Wealth (and power) distribution.

For markets to do what they are supposed to do best– allocate resources– there is some optimal distribution of wealth for the particular culture.

[Really? “optimal distribution of wealth”? I could see that a “particular culture” might be *defined* by its “distribution of wealth” but I don’t see in what sense you’re using the word “optimal” -W]

And that’s what the debate, with all the propagandistic language from neo-liberals, is about– they favor greater disparities, as long as they are on the up-side of the distribution. It has nothing to do with ‘freedom’ or even economic analysis; it is purely self-interest.

[No. But note the still deafening silence on any attempt to prove the original assertion: that free markets are incapable of supplying clean water. I’ve at least made some gesture towards providing evidence for the reverse. Those making – and is anyone else defending? – the original assertion appear to have nothing at all to support their views -W]

Basic infrastructure can hang around for a remarkably long time provided it was well-enough designed and built in the first place, as the Victorian sewers of London ably demonstrate. And there’s still a very large difference between maintaining an existing system and building it in the first place…

The Maya civilization in Honduras, pontificated the anonymous coward who’d spent time there, achieved Failed State status half a millennium before Venezuela, with the corny collapse of its city states, a catastrophe of a sort the Fierce People a thousand miles to the southeast never quite rose to, having stuck to their neolithic roots( slash and burn cassava mainly ) until done in by the seagoing Really Fierce People who, ate their way through the indigenous population of the Caribbean a thousand years ago. They in turn intermarried, succumbed to doceur de vivre and became the laid back folk Columbus encountered.

While Spain swiftly and extensively colonized Venezuela, putting an end to the golden era of cannibals in baroque art, the Honduran part of Nueva Grenada, remained a forested wilderness so politically disconnected that the ambassador to Central America dispatched by President Polk circa 1850 could find no government to receive his credentials. Huboldt in contradst , complained of the density of Venezuela’s colonial bureaucracy half a century earlier.

The problem with your claim that I am attacking straw men, is that I’m not. Their are quite literal a few million of US citizens who honestly believe there should be no taxation what so ever and that ever service imaginable should be privatized.

Also, I am baffled by your dismal of the question I raised about Venezuela and Honduras. Their current economic and politic systems are just about diametrically opposed, and yet they both have comparable health outcomes, degrees of inequality, violent crime rates, free speech repression, environmental degradation etc… Surely there is something to be learned there? At the very least about the consequences of history over and above the current choices in economic systems. It is particular glib of you to dismissively state that Honduras has not toilet paper crisis, when they have more than enough people unable to afford toilet paper. I also have a niggling suspicion that if you are powerful enough of Venezuela you probably have access to all the nicest toilet paper you could need, I don’t think that would be going out on a limb to say…

Am I being naive in assuming anyone else would see a very interesting question in the comparison of Venezuela to Honduras?

[I asked you So, go on: lets have a reference to support your assertion that the Koch bros “vociferously claim that only free market capitalism can bring good into the world”. I didn’t ask you to spam me with entire websites. No, I am not going to read through the entirety of aei.org. You made the assertion; you point me to *one* web page that actually says what you said. Not something that if you squint in the right light looks vaguely similar; actually what you said -W]

#26 Actually there is a difference. Typical privatization of public services involve private suppliers contributing to a pool of commonly used resources, for example power generation companies supplying a grid.

The idea is that a consumer contracts with a specific supplier, or a broker of suppliers for their resource like electricity or water. If all the consumers contracted to a particular supplier or broker consume more than the supplier or broker can handle, then the supplier or broker has to pay the difference to the other suppliers and brokers who took up the slack.

There are lengthy economic PhDs dedicated to working out the funding models to maintain these sort of pooled markets. Also there are novel derivatives markets that gamble on the ability of a particular supplier or broker to meet their contracted demand. The derivative markets allow for suppliers and brokers to hedge against under and over supply. This creates a market incentive for suppliers and brokers to accurately anticipate power usage so that there is little disruption in supply.

But more to the point, these systems still do not incentivize migrating to safer, cleaner technology. The markets create and incentive to produce the most resource for the least possible investment. Unfortunately reducing, say, the carcinogens produced, or improving air quality, or ending acid rain, requires employing more expensive technology. In this case the only way for the market to behave in a manner that improves measurable environmental and health outcomes is for regulators to create cost, liability, and penalty structures around environmental and health outcomes.

“[Really? “optimal distribution of wealth”? I could see that a “particular culture” might be *defined* by its “distribution of wealth” but I don’t see in what sense you’re using the word “optimal” -W]”

There is an optimal distribution of wealth that will allow markets to optimize the allocation of resources. That distribution may vary among nations, but the extremes of high inequality cause market failure. Isn’t that what you are talking about in the first place?

[No, I said nothing about that. Also, I’m no longer sure I know what you mean by “optimal distribution of wealth”. To mean, that means *exactly one* wealth-curve, so to speak. Not some vague band, or rough approximation, it means exactly one. Which I don’t believe.

the extremes of high inequality cause market failure – please, can you get into the habit of providing references for things you say? Its a good discipline, and prevents people just making stuff up -W]

Are you really going to argue that corrupt regimes that call themselves “communist” or “socialist” like the USSR are different from the feudal structures that preceded them?

[Yes. Of course they were different -W]

Wealth and power go together; if you decide to grow cotton on a massive amount of land you own, and dry up the Aral Sea, what difference if we call you a commissar or a CEO?

Either way, it is a market failure.

[No. Drying up the Aral Sea isn’t a market failure. Because there was no market involved. If anything, it was an absence-of-market failure; it was a command-economy failure. Your example proves exactly the contrary of what you want to prove -W]

And by the way, you do know that a utility is a monopoly so there is no ‘free market delivery of water’, unless you are talking about little plastic bottles, right?

[So: we’re back to the total absence of any evidence that the free market is unable to supply water? If you’re asserting that, supply some evidence -W]

First, I commend the clarity of your writing, and agree with most of it.

I’m not familiar with the water service in the UK.

As I understand electric utilities in the USA, we often have a true monopoly that combines production and delivery.

Consumers have no choice about the source, and pricing issues are resolved through a political entity which nominally is responsive to the ratepayers but is often completely captured by the industry. I have read that this is somewhat different in the UK.

We are currently seeing all kinds of politicization and manipulation with respect to incorporating rooftop solar, for example, which will cut into profits for the utility.

In an ideal world, the grid operator would be a true common carrier, and the market would allow individuals to participate as producers and consumers, even perhaps influencing the environmental outcomes.

There are literally countless indicators of how well a society functions, and wealthy is a poor proxy for most of them, especially considering wealth in and of itself is largely a social construct. Too name a few metrics:

Energy use per person.
Land use per person.
Increase in land degradation per year
Reclamation of land per year
Trees planted per year
Mortality rates, total, infant, mother, child
Violent crime rates
Wait times for ambulatory care
calories consumed per person
hours of exercise per person
incidence and prevalence of infectious diseases
incidence and prevalence of chronic diseases
Female/male literacy rates
Migration rates and distances
…all those previous indicators conditioned on having migrated and the distance of migration
preventable deaths and sickness due to lack of treatment

Reducing any of those to a single dollar value is nonsense. I think you get the point.

Now on to the no evidence that the great advancements have been altruistic. Lets take the Broad Street cholera outbreak

John Snow had no profit motive, and had no substantial financial gain personally. Yet basically founded the study of epidemiology. Or for that matter the invention of penicillin, insulin, and vaccinations:

Or for that matter anyone working in state funded primary education. It would be laughable to assert that teachers in state funded systems are their to get rich. At the end of the day the mix of motives and levels of personal satisfaction boil down to altruism, doing direct good for others because you can.

I don’t know what you think of as evidence. But I do know that you are engaging in circularity here. What you call a command economy is indistinguishable from monopoly or monopsony.

If I own all the arable land, I can grow whatever crop I like and you will eat it or starve. And I can buy your services at whatever price I like, or you will starve. Again, commissar or nobleman or CEO, what’s the difference?

As for “optimal”, there are always error bands; I assume smart people realize that.

And as for supplying water– see my #31. Are you talking about maintaining pipes and reservoirs, or filtration, treatment, desalinization and other value-adding activities? The former is a monopoly; the latter might involve markets but not with respect to the ultimate consumer. I can explain why not in contrast to electricity if you are interested.

Everything you think of as a great advancement, from smart phones, to MRIs, to the space program, to the internet, to social media, and mass shipped food, all of that is because a few dedicated altruistic individuals struggled tirelessly to find ways for very large groups of humans to live in extremely close proximity to each other, without dying off in huge numbers.

And this was not just advancements in medicine, it required advancements in justice, urban planning, government administration, and so on. Which became a positive feedback loop: increasing the density of human populations allowed people to invent new things, including new methods to live in even tighter populations, thus increasing rates of invention.

But it all started because a few people with little or nothing to gain aside from a sense of fulfilment, from artists, to scientists, to physicians, to philosophers put the time and effort into figuring out how we could live in large communities without either violently killing each other, or dying of communicable diseases.

Back when I got my economics degree (the Ordovician) it was acknowledged that there were “natural monopolies”. These were private entities with very high fixed cost in terms of infrastructure. The example usually given was the landline phone company. (Hey, I told you this was a long time ago.) The generally accepted view was that these were best operated as private companies but with government regulation.

Free marketeers of the US variety seem to believe no; i.e., unregulated private ownership is best forever and always. Perhaps a more interesting question is whether there are natural monopolies in the Information Age.

I’m afraid I’m mostly in agreement with you with regard to the distribution system of pooled resources like water and power. What you point to is again how much of what we think of as free markets are conditioned on large initial publicly investment and organization.

I am interested in learning about how the UK water supply system is not a market with respect to the consumer. The referenced material linked by Wikipedia implies the water system is run with the same sort of hedged pool that power markets are run.

AS has:” a niggling suspicion that if you are powerful enough of Venezuela you probably have access to all the nicest toilet paper you could need,”

Those short listing Venezuelans for the Guinness most evil people record point to a diplomatic incident in which el Presidente sailed his yacht to an even more impoverished nearby archipelago, partied hard for 72 hours , and tried to sail away without paying his bar bill.

In which we learn that a utility is using its vertically integrated monopoly position to discourage competition.

What I would find interesting is how WMC would characterize this with respect to the Orwellian “contestable monopoly” language.

[I’d begin by denying the “Orwellian” nonsense, and point you at the not-hard-to-find https://en.wikipedia.org/wiki/Contestable_market, wherein you’ll find conditions like “No entry or exit barriers” (in which you need to rewrite “no” to “negligible”). It seems unlikely that applies in this circumstance -W]

The question is, what part, if any, is the natural monopoly. The precise answer, I guess, is “provision of electricity through the existing grid”, but not “provision of electricity”. One could obviously physically ‘contest’ the provision of electricity.

In fact, this kind of think-tank rhetorical cuteness serves no purpose but to provide further arguments against anti-trust action– which are hardly needed at this point given regulatory capture.

Note to Aaron: I am not familiar with the specifics of the UK water business; I have my own well (USA) so I have not researched water anywhere near as much as I have electricity and its uses. But I don’t see how water offers much opportunity for ‘choice’ about sourcing, and certainly, unlike the rooftop solar paradigm, individuals would be hard-pressed to become producers.

Orwellian language stops being Orwellian when it appears in Wikipedia?

Here’s what it says, in conclusion:

“More generally, experimental evidence collected since the publication of Baumol’s paper has suggested that perfectly competitive markets would – if they existed – behave in the way Baumol outlined, the performance of imperfectly contestable markets (i.e. real-world markets) depends “on actual rather than potential competition”, perhaps in part due to the range of “strategic responses” available to incumbents that were not considered by Baumol as part of his theory.[5]”

In other words, monopolies have at their disposal anti-competitive practices– kinda the point of achieving that status in the first place, innit?

[Well, no, obviously not. The point of achieving monopoly status is to make oodles of money. “anti-competitive practices” are a cost, to the monopoly, not a benefit -W]

But you do seem to now acknowledge that providing water through the mains is a monopoly and so not achieved by the free market.

As I said above, providing water in bottles (or by tanker to a homeowner’s storage tank), yes. Just as I could enter the “provision of electricity” market by selling propane generators and a service contract– negligible entry and exit costs there, I think. But not through fixed infrastructure.

There are four intractable problems with applying abstract perfect market theories to the real world:

1. The theory assumes that all actors are rational, and can make every decision rationally. Not only is this empirically false, most people make decisions emotionally or instinctively, it is also mathematically impossible. By Gödel’s theorems, and the Russell’s paradoxes, in any formal representation of knowledge that admits mathematics one can always state decision problems that cannot be decided upon by the rules of the formal representation. There will always be decisions that can only be made by adding a new axiom to the formal representation. In general we add new axioms by observing the real world and choosing the simplest axiom which least contradicts the observations.

2. The theory assumes complete and perfect information for all the actors, again not only is this empirically false, no real person has perfect complete information, it is also mathematically false, as a lemma to point 1. Furthermore, I need only point to prevalence marketing and advertising as evidence of the great efforts that are undertaken to interfere with prefect complete information.

3. The theory distributes goods and services according to the (relative) perceived value of the goods and services (usually encapsulated in the utility function). This suffers from three fatal flaws, first by lemma to point 2 the perceived values of goods and services are easily manipulated and coerced. Second, real people perceive value in many goods and services that do them real harm. The usual target of this observation are smoking, fast food, and sedentary life styles. However I want to address a less obvious, and perhaps a more insidious, and corrosive example. Fashion magazines and fashion media are highly consumed and highly valued by many people. Yet it has a measurable detrimental effect, particularly on women, as seen in scores of self esteem, self worth, and self image, rates of social engagement, types of social engagement, and rates disorders like anorexia and compulsive behaviours. As much as we can measure these, they are measurable harms. Third, it is both empirically false and mathematically impossible to insist that each person holds a total order (linear ranking) of all goods and services.

4. The proofs in the theory implicitly depend in one way or another on some form of central tendency law, whether it is the central limit theorem, the weak law of large number, or the strong law of large numbers. As such this places very strict conditions of independence between by the abstract theoretical rational actors, and the abstract theoretical transactions of the abstract theoretical market. Empirically there is both a high degree of influence and correlation between the behaviour of people, and a high degree of influence and correlation within the individual actions of an individual person. To apply abstract theoretical markets one would have to assume that each persons action is independent of their previous action, that people never influence each other, and that there is no drift at all every in a persons preferences. By the most general law, the strong law of large numbers, at the very least the mean needs to be preserved.

Finally, philosophically, economic and financial theory’s reductive analysis of society through wealth is a form of closure. It prevents further questions and deeper understanding of our world. It is exactly akin to saying ‘because it is written in the bible’. The parallels are telling. There is no denying the enormous intellectual feats that have gone into the arcane sophistry of economic and financial theory, but so to are the intellectual feats of theologians undeniable. No one can claim that Thomas Aquinas was not a formidable academic, scholar, and philosopher, yet that does not make his work empirically correct, in the way the Standard Model, or Genetics is empirically correct.

zebra writes:”In other words, monopolies have at their disposal anti-competitive practices– kinda the point of achieving that status in the first place, innit?”

WC responds:”[Well, no, obviously not. The point of achieving monopoly status is to make oodles of money. “anti-competitive practices” are a cost, to the monopoly, not a benefit -W]”

WC, I think you’re not being charitable to the argument zebra presents. Baumol’s analysis neglected to take into account these ‘strategic responses’ – i.e., anti-competitive practices. While these are *a* cost to the company, they’re a *net* benefit.

[Of course they’re a net benefit. They wouldn’t do it otherwise! Isn’t that obvious? -W]

A company can become a defacto monopoly through sheer good fortune, great ideas, a far superior product or a host of ‘good’ reasons. Of course there are a multiple of ways to reach that status that we would be hard-pressed to call ‘good’. But however achieved, retaining that status almost always requires those strategic responses. Theory, at least in Baumol’s case, neglects to take these into account.

[You’re missing the point. There are different sorts of monopolies. In the real world, these are spread across a spectrum, but for the sake of reasoning we can consider two extremes: natural monopolies, wherein the monopolist has an entrenched and effectively unfair advantage – water supply is an obvious example – so regulation is required, because if the monopolist abuses their position, their customers cannot do anything about it nor new entrants take advantage; and contestable monopolies, wherein the monopolist cannot abuse their position to any significant extent, because competitors will leap in -W]

““anti-competitive practices” are a cost, to the monopoly, not a benefit ”

Now that’s just silly. Whatever ‘cost’ there is to maintaining a monopoly returns a net profit, otherwise the business wouldn’t do it. Like any other business decision.

[Err yes, to your second sentence. Obvs. Your first sentence is self-referential. You’re missing the point, though, which is that your original assertion, that the point of a monopoly was to engage in anti-competitive practice, is hopelessly wrong -W]

And it can certainly be argued that you will have to engage in less anti-competitive activity once you achieve the monopoly than you did getting there.

Arguing over implications of monopolies is missing the point, or at least circling widely around the central question: when exactly are economic theories applicable? The theories themselves have very serve constraints on them which limit their general application, and over application as it were to social systems.

But there are times when the theories work well, under very strict conditions. For example using economic theory there are provably optimal IP routing algorithms. This works because the utility measure, transmission time, is well defined, as well as the impact of volume, the more packets to be routed the more computations a routers have to undertake. Another example was the optimization of the ITER design, which incorporated economic theories of procurement, allocation, and scheduling into the search of the design parameter space.

“…your original assertion, that the point of a monopoly was to engage in anti-competitive practice…”

Tsk tsk. Misquoting is not acceptable.

“In other words, monopolies have at their disposal anti-competitive practices– kinda the point of achieving that status in the first place, innit? ”

You do see the difference now, I hope?

Having anti-competitive practices *at their disposal* works quite nicely with what I said in #47:

“And it can certainly be argued that you will have to engage in less anti-competitive activity once you achieve the monopoly than you did getting there.”

The threat can be sufficient to deter your “competitors” from “jumping in”.

Your last sentence, speaking of rhetorical shenanigans…

“the monopolist cannot abuse their position to any significant extent,”

… brings to mind the Any Significant Scotsman fallacy.

Is it possible that some level of ‘abuse’ would be sufficient, despite the anti-competitive practices at the monopolist’s disposal, to allow for successful competition? Difficult to say– I might be convinced, if you could provide some evidence?

[Consider the Saudi play on crude prices; several birds are being killed with this one stone. And they are hardly hurting themselves in any ‘significant’ way; they are perfectly positioned to charge what they like in the future and more than make up for current ‘losses’.]

I specifically pointed out that there are different sorts of monopolies. And regardless how we choose to categorize them it does not change the fact that all monopolies have strategic responses at their disposal. Simply being in a ‘contestable’ industry doesn’t mean the market will actually be contested to any significant extent. The US government actually realized this a few decades ago and now frowns upon sole-source contracts.

WMC on #13: I don’t think Capitalism does curse “all forms of not for profit collective action”. You’re attacking a strawman.

Maybe not in the UK, but there’s a huge amount of exactly this kind of rhetoric spewed daily in N.Am. by our mainstream media.

Here’s an example: our provincial (ha!) government here in Alberta just legislated a higher age limit for people using tanning salons, on account of the increased cancer risk to people with greater UV exposure in their teens. On CBC radio (barely to the left of the BBC in practical terms, if at all) they framed the discussion as “Government Regulation vs Personal Freedom”. Why, when this is a real public health issue? Because they’re under huge funding pressure (another 144 jobs cut today) from the federal government to appear more right wing, and to support the government’s free-market economic agenda. That agenda is clearly: “taxes bad, regulation bad, environment bad, profits and growth good” and “the end justifies the means” *. Any deviation from these ideas is demonized as “redistributionist” or “socialism”.

That’s not to say that Capitalism isn’t used as a strawman by both sides, but I’d say the prevailing message is that right-wing economics is The Truth, and anything else is just the sad remains of those who ruined the USSR. This is the work of Antony Fisher and the IEA, and their network of related think tanks in Canada and the US.

*and btw we won’t say or do anything about climate change, we’ll just get a bigger carpet to sweep it under – Look! We’re creating jobs for carpet-makers!